General Motors Corp.'s board began a meeting on Friday to discuss a three-way alliance with Nissan Motor Co. Ltd. and Renault SA as GM shares edged up on expectations the board would approve further consideration of the tie-up.
GM shares rose 2.3 percent to $29.87 in late Friday morning trade on the New York Stock Exchange.
Deutsche Bank analyst Rod Lache raised his ratings on GM shares on Friday from "sell" to "hold," citing "significant strategic implications" from the possible alliance.
"Ultimately we believe the decision will come down to GM's board of directors, who will have to decide whether they believe GM's turnaround strategy has a high probability of working," Lache said. "We have significant doubts, given ongoing market share erosion."
Wall Street analysts expect that GM's board will agree to research the potential alliance, which has been brokered by GM's largest individual shareholder, billionaire investor Kirk Kerkorian.
GM spokeswoman Toni Simonetti confirmed that the meeting of GM's 12-member board was proceeding Friday.
Kerkorian, who met in June to discuss the proposed tie-up with Carlos Ghosn, who heads both Renault and Nissan, has argued that the alliance could "enhance shareholder value" by cutting shared costs on product development and procurement.
Under the proposed terms of the deal, Nissan and Renault would buy up to a 20-percent stake in GM. Kerkorian, who owns 9.9 percent of GM, could then be at the center of an investor bloc with effective control of GM, analysts have said.
In that scenario, Ghosn, widely respected for his work in bringing Nissan back from the verge of failure from 1999, could move into a central role at GM, or perhaps replace GM Chief Executive Rick Wagoner.
Analysts believe GM's senior management, including Wagoner, will argue against the alliance, in part because any cost savings would be years in coming and the deal could distract attention from GM's own turnaround plan.
Wagoner has been spearheading a sweeping restructuring at GM, which includes slashing 30,000 jobs, closing 12 plants, cutting executive pay and halving the company's dividend.
But Kerkorian has lost patience with a crisis-management approach he sees as "reactive" rather than "proactive," a person familiar with his thinking said earlier this week.
GM lost $10.6 billion in 2005 and the company's share of the North American auto market has fallen from over 30 percent a decade ago to about 27 percent in the first half of this year.
GM's U.S. sales in the first half were down almost 12 percent, the sharpest decline recorded by any of the major automakers.
But GM's shares have gained almost 53 percent since the start of the year as investor pessimism over the automaker's short term prospects has eased on evidence that its cost-cutting plans were moving faster than anticipated.
Even after the rally, GM, the world's top automaker by revenue, still ranks No. 8 by market capitalization. GM's $16.5 billion market value is less than a tenth of the value of Toyota Motor Corp.(7203.T: Quote, Profile, Research)
Renault owns a controlling 44-percent stake in Nissan.
Despite Ghosn's reputation as a turnaround specialist, some analysts have questioned whether he has the time or capacity now to take on GM, especially given the challenges for the two auto companies he currently heads.
Nissan's first-half U.S. sales were down 6 percent, although Ghosn's strategy is banking on a rebound later this year after the launch of new models, including new versions of the Altima and Sentra sedans.
